Poor show by the manufacturing sector, pulled down factory output growth to 2.4 per cent in December 2018, from  7.3 per cent in the same month in the previous year.

However, the  IIP print was higher than 0.47 per cent growth recorded in November 2018.

For the April-December period, the Index of Industrial Production (IIP) grew 4.6 per cent, higher than 3.7 per cent in the same period last year, official data released on Tuesday showed.

Manufacturing, which has 77.6 per cent weightage in the IIP, saw a sharp slowdown in growth at 2.7 per cent in December 2018, lower than 8.7 per cent in the same month in the previous year.

For the April-December 2018 period, manufacturing grew 4.7 per cent, higher than 3.8 per cent in same period in the previous year.

Also read: All you wanted to know about... the New IIP Series

Mining output saw contraction of 1 per cent in December 2018, as against growth of 1.2 per cent in the same month in the previous year. Electricity output saw robust growth at 7.3 per cent for the month under review, higher than 4.3 per cent growth in the same month the previous year.

Madan Sabnavis, Chief Economist, CARE Ratings, told BusinessLine that IIP growth has been driven more by government spending which was reflected in both steel and cement in December 2018 and stable growth in the consumer segment. The higher capital goods growth rate should be read with caution as these numbers tend to be volatile. If sustained “we can expect overall growth of 5 per cent for the year,” he said.

Retail inflation

Continued deflation in food items and fall in fuel inflation helped retail inflation to further decline to 19-month low of 2.05 per cent in January.

This is the sixth straight month where the retail inflation has remained below the RBI’s medium term target of 4 per cent.

Consumer Price Index (CPI)-based inflation had come in at 2.11 per cent (now revised) in December. December retail inflation was earlier pegged at 2.19 per cent. In January last year, retail inflation stood at 5.07 per cent,

Consumer food price inflation (CFPI) further contracted to 2.17 per cent in January  from a level of (-) 2.65 per cent in December 2018. In January last year, CFPI had touched 4.70 per cent.

Core inflation for the month under review fell to 5.4 per cent, from 5.7 per cent in December.

It may be recalled that RBI had, in its recent sixth bimonthly policy review, revised downward inflation forecast to 2.8 per cent in the fourth quarter of 2018-19; 3.2-3.4 per cent in first half of 2019-20 and 3.9 per cent in the third quarter of 2019-20.

Sabnavis said  retail inflation has been comfortable once again coming in lower at 2.05 per cent which is almost the same as 2.1 per cent for November. “Declining food prices though good for CPI inflation is also a pain point for farmers  and will have other implications. Non-food inflation has improved on clothing and fuel which will be sustained in the coming months.

The other components of core are still above 5 per cent which is significant and will play in the minds of the MPC, he said.

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